VW Risks its $31 bil­lion Brand and Ger­many’s Na­tional Rep­u­ta­tion

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That such an iconic Ger­man brand, the ‘peo­ple’s car’, could be­have in this way threat­ens to undo decades of ac­cu­mu­lated good­will and cast as­per­sions over the prac­tices of Ger­man industry.

Re­cent rev­e­la­tions that, at the time of writ­ing, as many as 11 mil­lion diesel ve­hi­cles may have been fit­ted with soft­ware de­signed to de­ceive emis­sions testers, have dealt a ham­mer blow not just to Volk­swa­gen’s rep­u­ta­tion but po­ten­tially to the en­tire Ger­man na­tion brand. David Haigh, CEO of brand val­u­a­tion and strat­egy con­sul­tancy Brand Fi­nance, gives his view on the scan­dal that has sent shock­waves around the world.

At Brand Fi­nance’s last cal­cu­la­tion VW’S brand value stood at just over US$31 bil­lion, mak­ing it the world’s third most valu­able auto brand. It ap­peared to be mo­tor­ing ahead, brand value hav­ing in­creased from just over US$27 bil­lion in 2014. The de­vel­op­ments of the last few days will un­doubt­edly send this trend into re­verse, re­sult­ing in $10 bil­lion in lost brand value. The ap­par­ent ease with which the com­pany’s ac­tiv­i­ties were un­cov­ered makes it all the more as­ton­ish­ing that VW was will­ing to en­dan­ger its most valu­able as­set. Rather than ‘Das Auto’, VW’S motto might be more ap­pro­pri­ate if changed to ‘Crass Auto’.

The Scan­dal in Front is a Toy­ota

Toy­ota, the world’s most valu­able auto brand, suf­fered sig­nif­i­cant rep­u­ta­tional and brand dam­age fol­low­ing a se­ries of re­calls over me­chan­i­cal is­sues from 2009 to 2011. This was re­flected in its brand value. Af­ter reach­ing a peak of US$27.3 bil­lion in 2010, it dropped to US$26.2 in 2011 and fur­ther to $24.5 in 2012. It did not ex­ceed the pre­vi­ous peak un­til 2014, when brand value was US$34.9 bil­lion, in­creas­ing slightly to US$35 bil­lion this year.

On first as­sess­ment it ap­peared that Volk­swa­gen might es­cape such se­vere brand dam­age. Toy­ota’s er­rors led di­rectly and vis­i­bly to fa­tal ac­ci­dents while Volk­swa­gen’s al­leged ac­tiv­ity may also pose a threat to life, but in a less im­me­di­ate way. How­ever, as the scale of the de­cep­tion has emerged over the last few days it is be­gin­ning to look as though VW may face a cri­sis on an un­prece­dented scale.

The cost of re­calls and fines could be far more sig­nif­i­cant than those Toy­ota faced, whilst the ap­par­ently de­lib­er­ate na­ture of VW’S ac­tions com­pounds the im­pact on its cred­i­bil­ity. Its sins of emis­sion are sins of com­mis­sion. This sits par­tic­u­larly badly with Volk­swa­gen’s brand iden­tity which is founded on re­li­a­bil­ity, hon­esty, ef­fi­ciency (both ef­fi­ciency of pro­duc­tion and fuel econ­omy) and more re­cently for en­vi­ron­men­tal friend­li­ness via mod­els such as the Polo Blue­mo­tion and XL1. Brand Fi­nance there­fore es­ti­mates that as much as $10 bil­lion has al­ready been wiped off the value of the brand.

VW Brand for the Scrapheap?

The very fu­ture of the VW brand is in doubt. To have any chance of re­cov­ery, VW must in­ves­ti­gate the source of the sup­pos­edly ne­far­i­ous ac­tiv­ity and if it is con­fined to a par­tic­u­lar divi­sion or se­ries of ‘bad ap­ples’ then to clearly com­mu­ni­cate that fact to avoid con­ta­gion. It must en­sure that this type of ac­tiv­ity can­not take place again and through mul­ti­ple com­mu­ni­ca­tion chan­nels, from of­fi­cial state­ments to ad­ver­tis­ing cam­paigns, con­tinue to em­pha­sise the brand’s green cre­den­tials and com­mit­ment to mit­i­gat­ing the ef­fect of the industry on the en­vi­ron­ment.

From Peo­ple’s Car to Peo­ple’s Shame

It may al­ready be too late to stop the cor­ro­sive ef­fect VW is hav­ing on the rep­u­ta­tion of its home coun­try, in par­tic­u­lar its busi­ness cul­ture. Ger­man industry is lauded for its ef­fi­ciency and re­li­a­bil­ity while Ger­mans as a whole are seen as hard-work­ing, hon­est and law abid­ing. This per­cep­tion has only been in­ten­si­fied by the Merkel gov­ern­ment’s firm, liti­gious ap­proach to the Greek debt cri­sis.

That such an iconic Ger­man brand, the ‘peo­ple’s car’, could be­have in this way threat­ens to undo decades of ac­cu­mu­lated good­will and cast as­per­sions over the prac­tices of Ger­man industry, mak­ing the Siemens bribery scan­dal ap­pear less a one-off than ev­i­dence of a broader malaise. With re­ports that BMW has been im­pli­cated too, the dam­age to Ger­many’s na­tion brand could be­come crit­i­cal. Nev­er­the­less, Ger­many’s sta­tus as the world’s most pow­er­ful na­tion brand (re­vealed in the 2014 edi­tion of the Brand Fi­nance Na­tion Brands re­port) is un­der threat, and na­tion brand value could be set to fall when the re­sults of our 2015 study are re­vealed next month.

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